Hospice-home health merger to affect long-term care

Developments in the hospice and home care markets may not generally catch the eyes of folks in the long-term care sphere. But that could change as a result of a recent transaction.

That deal is the planned acquisition by Gentiva Health Services Inc., a home health provider, of Odyssey HealthCare Inc., a hospice company. The $1 billion merger would create the country's largest provider of home health and hospice care, according to IBISWorld Inc., a publisher of industry market research.

This massive deal could spur more convergence and consolidation across the whole aging services market, including nursing homes, assisted living and long-term care, analysts say.

Bringing hospice and home care together is "a transaction that can overnight change other industry player strategies," Bill Buhr, an analyst with rating firm Morningstar, told Investor's Business Daily.

One reason for consolidation is smaller government Medicare and Medicaid payouts, IBISWorld noted.

“Consolidation is a method to reduce costs and increase negotiating power with managed care organizations (MCOs),” it said in a statement. “By merging with other providers, industry operators are able to spread certain costs, such as administration, marketing and purchases over more locations.”

The research firm adds that industry consolidation actually has been happening for a while. Both Gentiva and Odyssey, prior to the announced deal, have generated a significant portion of their growth through acquisitions. The move toward consolidation began in the 1990s as managed care organizations merged, IBISWorld said.

Those who follow long-term care closely have been noticing the trend toward convergence for a while. Major nursing home chains have added hospice and home care to their array of services, along with short-term rehabilitation and other types of care.

It's commonly known that it is not feasible for many companies to solely offer nursing home care, particularly with low Medicaid margins. These other services increasingly are playing an important role in generating revenues.

And if the analysts are right, we are only going to see more cross-pollinating of sectors.

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Daily Editors' Notes

McKnight's Daily Editor's Notes features commentary on the latest in long-term care news. Entries are written by Editorial Director John O'Connor on Monday and Friday; Staff Writer Tim Mullaney on Tuesday, Editor James M. Berklan on Wednesday and Senior Editor Elizabeth Newman on Thursday.